REPORT A Primer on Medicare March 2015 KEY FACTS ABOUT THE MEDICARE PROGRAM AND THE PEOPLE IT COVERS
This primer was prepared by Juliette Cubanski, Christina Swoope, Cristina Boccuti, Gretchen Jacobson, Giselle Casillas, Shannon Griffin, and Tricia Neuman of the Kaiser Family Foundation s Program on Medicare Policy.
Medicare is a federal program established in 1965 that provides health insurance coverage to 55 million people in 2015, including 46 million people ages 65 and older and 9 million younger people with permanent disabilities. The program covers all those who are eligible regardless of their health status, medical conditions, or incomes. Most individuals become eligible for Medicare when they reach age 65. People under age 65 qualify for Medicare after 24 months of receiving Social Security Disability Insurance (SSDI) payments, or if they have end-stage renal disease (ESRD) or amyotrophic lateral sclerosis (ALS, also known as Lou Gehrig s disease). Medicare covers a diverse population. Many people on Medicare live with health problems ranging from multiple chronic conditions, cognitive impairments, and limitations in their activities of daily living. Most people with Medicare live on modest incomes. Medicare covers basic health services, including hospital stays, physician visits, and prescription drugs. At the same time, gaps in Medicare's benefit package include long-term care services, vision services, dental care, and hearing aids. Medicare has varying premiums, deductibles, and coinsurance amounts that can change annually to reflect changes in program costs. Taken altogether, Medicare has relatively high cost-sharing requirements for covered benefits, but traditional Medicare provides no protection from catastrophic medical expenses. Through the Part D program, Medicare helps cover the cost of prescription drugs offered by private drug plans. Seven out of 10 Medicare beneficiaries are currently enrolled in a Part D drug plan, including standalone prescription drug plans and Medicare Advantage drug plans. Roughly 12 million low-income beneficiaries are receiving extra help with their Part D plan premiums and cost sharing. Medicare Advantage plans are private health plans that receive payments from Medicare to provide Medicare-covered benefits to enrollees. Three in 10 beneficiaries are enrolled in a Medicare Advantage plan. Most Medicare beneficiaries have some type of supplemental insurance to help pay Medicare s cost-sharing requirements and fill gaps in Medicare s benefit package. Primary sources of supplemental coverage include employer-sponsored plans, Medicaid, Medigap policies, and Medicare Advantage plans.
Medicare and Medicaid play important but different roles for people who are eligible for both programs. These dual-eligible beneficiaries are poorer and have more medical needs than beneficiaries who are not dually eligible. The enactment of Medicare dramatically improved access to care for millions of elderly Americans. Beneficiaries generally enjoy broad access to physicians, hospitals, and other providers, and report relatively low rates of problems across a number of access measures. Medicare relies on a number of different approaches when determining payments to each provider for services they deliver to Medicare beneficiaries. While traditionally Medicare has paid providers on a feefor-service basis, Medicare is implementing new payment models that are designed to tie traditional Medicare payments to provider performance on quality and spending. Delivery system reforms are new payment approaches for health care designed to change the way providers organize and deliver care. The Affordable Care Act included a number of delivery system reforms that are being implemented in the Medicare program. Medicare accounted for 14 percent of federal spending in 2014 and one-fifth of the $2.5 trillion in personal health care expenditures in the U.S in 2013. In the short term, Medicare spending per person is expected to grow more slowly than it has in the past, while over the longer term, Medicare spending is expected to begin to rise more rapidly due to a number of factors. Funding for Medicare comes primarily from general revenues (41 percent in 2013) and payroll taxes (38 percent), followed by premiums paid by beneficiaries (13 percent). Looking to the future, Medicare is expected to face financing challenges due to the aging of the U.S. population and increasing health care costs.
July 30, 2015 marks the 50 th anniversary of the date in 1965 that President Lyndon Johnson signed the law establishing the Medicare program. Medicare is a social insurance program that helps to provide health and financial security for people ages 65 and older and younger people with permanent disabilities. Prior to 1965, roughly half of all seniors lacked medical insurance; today, virtually all seniors have health insurance under Medicare. Since Medicare's beginning, a number of changes have been made to expand benefits, revise the way Medicare pays providers, modify beneficiary out-of-pocket costs for Medicare-covered services, improve access and coverage for low-income individuals, expand the role of private plans in providing Medicare-covered benefits, strengthen quality, and address the growth in program spending. Today, Medicare provides health insurance coverage to more than 55 million people: 46.3 million people ages 65 and older and 9 million people with permanent disabilities under age 65. The program helps to pay for many vital health care services, including hospitalizations, physician visits, and prescription drugs, along with post-acute care, skilled nursing facility, home health care, hospice, and preventive services. People who are working contribute payroll taxes to Medicare and most people become eligible for Medicare when they reach age 65, regardless of income or health status. Comprising 14 percent of the federal budget in 2014 and just over one-fifth of total personal health expenditures in 2013, Medicare spending has slowed in recent years and is expected to grow at a slower rate than private insurance on a per person basis over the next decade. At the same time, Medicare is often part of discussions about how to moderate the growth of both federal spending and health care spending in the U.S. With the challenges of providing increasingly expensive medical care to an aging population and sustaining the program for the future, Medicare is likely to remain prominent on the federal policymaking agenda in the years ahead. As policymakers consider potential changes to Medicare, the effects of such changes on total health care expenditures, Medicare spending, and beneficiaries access to quality care and their out-of-pocket costs will be important considerations.
The program was expanded in 1972 to include people under age 65 with permanent disabilities receiving Social Security Disability Insurance (SSDI) payments and people with end-stage renal disease (ESRD). In 2001, Medicare eligibility expanded further to cover people with amyotrophic lateral sclerosis (ALS, or Lou Gehrig s disease). Part A, also known as the Hospital Insurance (HI) program, covers inpatient hospital, skilled nursing facility, some home health visits, and hospice care. Part A is funded by a tax of 2.9 percent of earnings paid by employers and workers (1.45 percent each), along with an additional 0.9 percent paid by higher-income taxpayers (wages above $200,000/individual and $250,000/couple). An estimated 55 million people are enrolled in Part A in 2015. Part B, the Supplementary Medical Insurance (SMI) program, helps pay for physician, outpatient, some home health, and preventive services. Part B is funded by general revenues and beneficiary premiums. Beneficiaries who have higher annual incomes (more than $85,000/single person, $170,000/married couple) pay a higher, income-related monthly Part B premium; the Affordable Care Act (ACA) froze the income thresholds at 2010 levels from 2011 through 2019. An estimated 51 million people are enrolled in Part B in 2015. Part C, also known as the Medicare Advantage program, allows beneficiaries to enroll in a private plan, such as a health maintenance organization (HMO) or preferred provider organization (PPO), as an alternative to traditional Medicare. These plans receive payments from Medicare to provide all Medicare-covered benefits, including hospital and physician services, and in most cases, prescription drug benefits. In 2014, 15.7 million beneficiaries were enrolled in Medicare Advantage plans. Part D, the outpatient prescription drug benefit, was established by the Medicare Modernization Act of 2003 (MMA) and launched in 2006. The voluntary benefit is delivered through private plans that contract with Medicare: either stand-alone prescription drug plans (PDPs) or Medicare Advantage prescription drug (MA-PD) plans. Part D plan enrollees generally pay a monthly premium and cost sharing for prescriptions (varying by plan). In 2015, an estimated 42 million beneficiaries are enrolled in Part D.
The four different parts of Medicare have varying eligibility requirements, as described below. In general, coverage under Medicare Part A and Part B is automatic when a Medicare-eligible individual applies for Social Security or Railroad Retirement benefits. Individuals can decline enrollment in Medicare Part B if they have other qualifying group coverage. If an individual qualifies for Medicare at age 65 but is not yet receiving Social Security or Railroad Retirement benefits, an application for Medicare is required to initiate Medicare coverage. Age 65 and older: People age 65 and older qualify for Medicare if they are U.S. citizens or permanent legal residents with at least five years of continuous residence. Individuals qualify without regard to their medical history or preexisting conditions, and do not need to meet an income or asset test. Under age 65: Adults under age 65 with permanent disabilities are eligible for Medicare after receiving Social Security Disability Income (SSDI) payments for 24 months. ESRD/ALS: People with end-stage renal disease (ESRD) or amyotrophic lateral sclerosis (ALS) are eligible for Medicare benefits as soon as they begin receiving SSDI payments, without having to wait an additional 24 months. Since most people make payroll tax contributions during their working years, most people who are eligible for Part A do not need to pay premiums for covered services. However, people age 65 and older are required to pay a monthly premium to receive Part A benefits if neither they nor their spouse made payroll contributions for 40 or more quarters. Adults under age 65 who are eligible for Medicare do not need to pay premiums for Part A benefits. Medicare Part B is voluntary, but more than 90 percent of beneficiaries with Part A are also enrolled in Part B. For most individuals who become entitled to Part A, enrollment in Part B is automatic unless the individual declines enrollment. Individuals age 65 and older who are not entitled to premium-free Part A may enroll in Part B. With the exception of Medicare-eligible individuals who are working (or those with working spouses), who may delay enrollment in Part B if they receive employment-based coverage, those who do not sign up for Part B when they are first eligible typically pay a penalty for late enrollment in addition to the regular monthly premium for the duration of their enrollment in Part B. Outside of their initial enrollment period for Medicare, beneficiaries can elect to enroll in a Medicare Advantage plan (or switch from one plan to another) on an annual basis between October 15 and December 7 of each year during the annual election period. Changes made during this period take effect on January 1 of the following year. Beneficiaries enrolled in a Medicare Advantage plan on January 1 who wish to disenroll and return to traditional Medicare have 45 days to do so (between January 1 and February 14 each year); they are not allowed to switch from one Medicare Advantage plan to another during this period.
To get Part D benefits, beneficiaries must enroll in a stand-alone prescription drug plan (PDP) or Medicare Advantage prescription drug (MA-PD) plan. The annual election period for Part D runs from October 15 to December 7 each year. People who delay enrollment in Part D beyond their initial enrollment period and who do not have creditable drug coverage (at least comparable to the Part D standard benefit) during this time pay a permanent premium penalty if they choose to enroll in a Part D plan at a later time.
While most beneficiaries (71%) are between the ages of 65 and 84, 16 percent are under age 65 and permanently disabled, while another 13 percent are ages 85 and older (Figure 1). More than half of beneficiaries (55%) are female, but women account for an even larger share of beneficiaries at older ages. More than threequarters (77%) of beneficiaries are white, while 10 percent are black and 9 percent are Hispanic. In terms of health status, a majority of beneficiaries report being in good or better health, but one in four Medicare beneficiaries report (26%) being in fair or poor health (Figure 2). Close to half (45%) of beneficiaries live with four or more chronic conditions and three out of ten beneficiaries (31%) have a cognitive or mental impairment. One-third of beneficiaries (34%) have one or more limitations in activities of daily living (ADLs), such as eating or bathing, that limit their ability to function independently. Most Medicare beneficiaries live at home; however, five percent live in a long-term care setting, such as a nursing home or assisted living facility. Women account for nearly two-thirds of beneficiaries living in long-term care settings along with a disproportionate share of beneficiaries ages 85 and older (67%) and beneficiaries who are dually eligible for Medicare and Medicaid (60%). Figure 1 Selected Demographic Characteristics of Medicare Beneficiaries, 2010 Male 45% Female 55% Other 5% Hispanic 9% Black 10% White 77% Gender Race/Ethnicity Age SOURCE: Kaiser Family Foundation analysis of the Medicare Current Beneficiary Survey 2010 Cost and Use file. Figure 2 85+ 13% 75-84 27% 65-74 44% <65 16% Selected Measures of Health Status of the Medicare Population, 2010 4+ Chronic Conditions Functional Impairment (1+ ADL Limitations) Cognitive/Mental Impairment Fair/Poor Health Percent of all Medicare beneficiaries: 26% 31% NOTE: ADL is activity of daily living. SOURCE: Kaiser Family Foundation analysis of the Medicare Current Beneficiary Survey 2010 Cost and Use file. 34% 45%
Compared to beneficiaries over age 65, a larger share of beneficiaries under age 65 are men (53% versus 44%), racial and ethnic minorities (36% versus 21%), and are dually eligible for Medicare and Medicaid (46% versus 14%). Because people under age 65 on Medicare qualified due to having a permanent disability, they typically have relatively high rates of chronic conditions, functional limitations, and cognitive impairments. A much larger share of beneficiaries under age 65 than those ages 65 and older report that they are in fair or poor health status (56% versus 21%). Among beneficiaries at the older end of the age spectrum, a larger share of beneficiaries ages 85 and older than those between the ages of 65 and 74 are women (67% versus 54%), white (85% versus 78%), living in long term care facilities (17% versus 2%), and dually eligible for Medicare and Medicaid (20% versus 11%). Not surprisingly, there are also differences in health status between the two groups; compared to younger seniors, a larger share of the oldest old (age 85 and older) have four or more chronic conditions (61% versus 36%), cognitive impairments (44% versus 19%), and one or more functional limitations (60% versus 20%). In 2013, half of all Medicare beneficiaries had incomes below $23,500 per person (Figure 3). This equates to roughly 200 percent of the federal poverty level ($11,173 for a single person and $14,095 for a married couple age 65 and older in 2013). Income declines with age among seniors and is lower among women than men and among blacks and Hispanics compared to whites, and higher among married beneficiaries and those with higher education levels. A larger share of beneficiaries under age 65 have relatively low incomes compared to those ages 65 and older. Figure 3 Distribution of Medicare Beneficiaries By Income, 2013 5%: incomes above $93,900 50%: incomes below $23,500 25%: incomes below $14,400 NOTE: Total household income for couples is split equally between husbands and wives to estimate income for married beneficiaries. SOURCE: Urban Institute analysis of DYNASIM for the Kaiser Family Foundation. Along with having relatively low incomes, many Medicare beneficiaries have relatively low levels of savings. In 2013, half of all beneficiaries reported savings less than $61,400 per person. As with income, savings levels are lower among beneficiaries who are female, racial and ethnic minorities, and those under age 65. Driven by the aging "Baby Boom" generation, the U.S. population ages 80 and over will nearly triple between 2010 and 2050, increasing from 11 million to 31 million people, and the number of people ages 90 and over will quadruple (from 2 million to 8 million). As an increasing number of people become eligible for Medicare and as more people live into their 80s and beyond, the demographics of the Medicare population can be expected to change, not only in terms of the age distribution, but also beneficiaries' physical and mental capabilities, financial resources, health status, and medical needs.
Part A benefits include inpatient care provided in hospitals and short-term stays in skilled nursing facilities, hospice care, postacute home health care, and pints of blood received at a hospital or skilled nursing facility. In 2010, 19 percent of beneficiaries in traditional Medicare had an inpatient hospital stay, while 9 percent used home health care services, 5 percent had a skilled nursing facility stay, and 3 percent used hospice care (Figure 4). Part B benefits include outpatient services such as outpatient hospital care, physician visits, and preventive services (e.g., mammography and colorectal screening). Part B benefits also include ambulance services, clinical laboratory services, durable medical equipment (such as wheelchairs and oxygen), kidney supplies and services, outpatient mental health care, and diagnostic tests (such as x-rays and magnetic resonance imaging). The ACA added a free annual comprehensive wellness visit and personalized prevention plan to the list of Medicare-covered benefits. The law also gave the Secretary of Health and Human Services (HHS) the authority to modify coverage of Medicare-covered preventive services to conform to the recommendations of the U.S. Preventive Services Task Force (USPSTF). A larger share of beneficiaries use Part B services compared to Part A services. For example, in 2010, more than three quarters (78%) of traditional Medicare beneficiaries had a physician office visit. Part C (Medicare Advantage) private health plans cover all benefits under Medicare Part A, Part B, and, in most cases, Part D. Medicare Advantage plans are required to provide all Medicare-covered benefits, but are permitted to vary the benefit design as long as the core benefit package (excluding the value of supplemental benefits) is actuarially equivalent to traditional Medicare. Some Medicare Advantage plans also include extra benefits, such as dental services, eyeglasses, or hearing exams. (See "What is Medicare Advantage?" for additional information.) Figure 4 Percent of Traditional Medicare population with: Part D covers an outpatient prescription drug benefit through private plans. Plans are required to provide a standard benefit or one that is actuarially equivalent, and may offer more generous benefits. In 2010, 89 percent of traditional Medicare beneficiaries used prescription drugs. (See "What is the Medicare Part D prescription drug benefit?" for additional information.) Medicare Beneficiaries Utilization of Selected Medicare- Covered Services, 2010 Prescription drug use Physician office visit Inpatient hospital stay Home health visit Skilled nursing facility stay Hospice days 5% 3% 9% 19% NOTE: Analysis excludes beneficiaries enrolled in Medicare Advantage. SOURCES: Kaiser Family Foundation analysis of the Medicare Current Beneficiary Survey 2010 Cost and Use file. 78% 89%
Medicare does not pay for some services and supplies that are often needed by older people and younger beneficiaries with disabilities. For instance, Medicare does not pay for custodial long-term services and supports, either at home or in an institution, such as a nursing home or assisted living facility. Medicare also does not pay for routine dental care and dentures, routine vision care or eyeglasses, or hearing exams and hearing aids.
Part A: Most beneficiaries do not pay a monthly premium for Part A services, but are required to pay a deductible before Medicare coverage begins. In 2015, the Part A deductible for each spell of illness is $1,260 for an inpatient hospital stay. Beneficiaries are generally subject to coinsurance for Part A benefits, including extended inpatient stays in a hospital ($315 per day for days 61-90 and $630 per day for days 91-150 in 2015) or skilled nursing facility ($157.50 per day for days 21-100 in 2015). There is no coinsurance for days 1-60 of an inpatient hospital stay or days 1-20 of a skilled nursing facility stay, and there is no cost sharing for home health visits. Part B: Beneficiaries enrolled in Part B are generally required to pay a monthly premium ($104.90 in 2015). Beneficiaries with annual incomes greater than $85,000 for a single person or $170,000 for a married couple in 2015 pay a higher, income-related monthly Part B premium, ranging from $146.90 to $335.70. The income amounts that are used to determine who pays the income-related premium and how much they will pay are fixed at their current levels through 2019. Approximately 5 percent of all Medicare beneficiaries paid the income-related Part B premium in 2014. Part B benefits are subject to an annual deductible ($147 in 2015), and most Part B services are subject to coinsurance of 20 percent. No coinsurance or deductible is charged for the annual wellness visit or for preventive services that are rated 'A' or 'B' by the USPSTF. Part C (Medicare Advantage): Medicare Advantage plan enrollees generally pay the monthly Part B premium and many also pay an additional premium directly to their plan. Medicare Advantage plans are required to place a limit on beneficiaries out-of-pocket expenses for Medicare Part A and Part B covered services ($6,700 in 2015). This limit is not applied to beneficiaries in traditional Medicare, nor is it applied to out-of-pocket expenses for prescription drugs covered under Part D. (See "What is Medicare Advantage?" for additional information.) Part D: In general, Part D enrollees pay a monthly premium, along with cost-sharing amounts for each brand-name and generic drug prescription; premiums and cost sharing vary by plan. Part D enrollees with higher incomes ($85,000 for a single person and $170,000 for a couple) pay an income-related monthly adjustment amount in addition to the monthly premium charged by their Part D plan. As with the Part B income-related premium, the income thresholds that determine who pays higher premiums for Part D coverage are fixed at current levels through 2019. (See "What is the Medicare Part D prescription drug benefit?" for additional information.)
Supplemental insurance coverage can help beneficiaries pay their out-of-pocket costs for Medicare-covered services. Even with supplemental insurance, however, beneficiaries can face out-of-pocket expenses in the form of copayments for services including physician visits and prescription drugs as well as costs for services not covered by Medicare. Also, premiums for these policies can be costly: beneficiaries with Medigap supplemental policies generally pay higher premiums than those with employer-sponsored retiree health coverage. Moreover, while Medicaid, the Medicare Savings Programs (MSPs), and the Part D Low-Income Subsidy (LIS) program help to shield low-income beneficiaries from Medicare premiums and other out-ofpocket costs, not all low-income people on Medicare qualify for these programs. (See "What types of supplemental insurance do beneficiaries have?" for additional information.) The burden of out-of-pocket spending for health care expenses is three times larger for Medicare households than non-medicare households (Figure 5). In 2010, Medicare beneficiaries spent $4,745 out of their own pockets for health care spending, on average, including premiums for Medicare and other types of supplemental insurance and costs incurred for medical and long-term care services (Figure 6). Premiums for Medicare and supplemental insurance accounted for 42 percent of average total out-ofpocket spending among beneficiaries in traditional Medicare in 2010. Of the remaining 58 percent of average total outof-pocket spending on services, long-term facility costs are the largest component (accounting for 18 percent of total out-of-pocket spending), followed by medical providers/supplies (14%), prescription drugs (11%), and dental care (6%). Figure 5 Distribution of Average Household Spending by Medicare and Non-Medicare Households, 2012 Medicare Household Spending Housing $11,673* 34.3% Other $7,321* 21.5%* Transportation $5,087* 15.0% Food $5,189* 15.3% Health Care $4,722* 13.9%* Average Household Spending, 2012 = $33,993* Non-Medicare Household Spending Housing $16,976 32.0% Transportation $9,660 Health 18.2% $2,772 Care 5.2% Other $15,702 29.6% Food $7,890 14.9% Average Household Spending, 2012 = $53,000 NOTE: *Estimate statistically significantly different from the non-medicare household estimate at the 95 percent confidence level. SOURCE: Kaiser Family Foundation analysis of the Bureau of Labor Statistics Consumer Expenditure Survey Interview and Expense Files, 2012. Figure 6 Distribution of Average Total Out-of-Pocket Spending on Services and Premiums by Medicare Beneficiaries, 2010 18% Long-term care facility Premiums 42% $2,000 Services 58% $2,746 14% 11% Medical providers and supplies Prescription drugs 6% 3% 3% 2% 1% Dental Inpatient hospital Skilled nursing facility Outpatient hospital Home health Average Total Out-of-Pocket Spending on Services and Premiums, 2010: $4,745 NOTE: Analysis excludes beneficiaries enrolled in Medicare Advantage plans. Premiums includes Medicare Parts A and B and other types of health insurance beneficiaries may have (Medigap, employer-sponsored insurance, and other public and private sources). Estimates do not sum to total due to rounding. SOURCE: Kaiser Family Foundation analysis of the Medicare Current Beneficiary Survey 2010 Cost and Use file.
Spending on medical and long-term care rises with age among beneficiaries ages 65 and older and is higher for women than men, especially among those ages 85 and older (Figure 7). Beneficiaries health status and chronic conditions also are significant drivers of out-ofpocket spending, with average out-of-pocket spending on services rising as beneficiaries health status declines, and rising with the number of functional impairments and chronic conditions. Out-of-pocket spending is also higher among beneficiaries who have multiple hospitalizations and post-acute care use and those who live in long-term care facilities. These differences are driven primarily by variation in average spending on medical and long-term care services, rather than by variation in premium spending. Figure 7 Medicare Beneficiaries Average Total Out-of-Pocket Spending on Services and Premiums, by Self-Reported Health Status and Age, 2010 Services Premiums $4,094 $4,131 $1,797 $1,858 $4,742 $2,649 $2,297 $2,274 $2,093 $5,767 $4,230 $5,537 $4,246 $1,537 $1,291 $3,023 $2,074 $948 $4,054 $1,956 $5,247 $2,845 $8,276 $6,012 $2,098 $2,402 $2,264 Excellent Very good Good Fair Poor Under 65 65-74 75-84 85+ Health status NOTE: Analysis excludes beneficiaries enrolled in Medicare Advantage plans. Premiums includes Medicare Parts A and B and other types of health insurance beneficiaries may have (Medigap, employer-sponsored insurance, and other public and private sources). SOURCE: Kaiser Family Foundation analysis of the Medicare Current Beneficiary Survey 2010 Cost and Use file. Age In 2010, one in four beneficiaries spent at least $5,276 out of pocket on medical and long-term care services and premiums (the top quartile), and one in ten spent at least $8,292 (the top decile). Average total out-ofpocket spending among the top quartile $11,501 in 2010 was more than twice as much as the average among all beneficiaries ($4,745), while among the top decile, it was four times as much ($19,103). Long-term care facility costs are a major component of spending for beneficiaries in the top quartile of total out-of-pocket spending. This group of 'high out-of-pocket spenders' includes a disproportionate share of older women, beneficiaries living in long-term care facilities, those with Alzheimer s disease and ESRD, and beneficiaries who were hospitalized.
In 2015, 1,001 stand-alone prescription drug plans (PDPs) are available nationwide, fewer than in any year since the program began in 2006. Medicare beneficiaries in each region have a choice of 30 stand-alone PDPs, on average, in 2015. The standard benefit in 2015 has a $320 deductible and 25 percent coinsurance up to an initial coverage limit of $2,960 in total drug costs, followed by a coverage gap (Figure 8). During the gap, enrollees are responsible for a larger share of their total drug costs than in the initial coverage period. Enrollees in plans with no additional gap coverage in 2015 pay 45 percent of the total cost of brands and 65 percent of the total cost of generics in the gap until they reach the catastrophic coverage limit. Medicare will phase in additional subsidies for brands and generic drugs, ultimately reducing the beneficiary coinsurance rate in the gap to 25 percent by 2020. Figure 8 Standard Medicare Prescription Drug Benefit, 2015 CATASTROPHIC COVERAGE COVERAGE GAP ( Doughnut Hole ) INITIAL COVERAGE PERIOD Enrollee pays 5% Enrollee pays 25% Plan pays 15%; Medicare pays 80% Brand-name drugs Enrollee pays 45% Plan pays 5% 50% manufacturer discount Generic drugs Enrollee pays 65% Plan pays 35% Plan pays 75% Catastrophic Coverage Limit = $7,062 in Estimated Total Drug Costs* Initial Coverage Limit = $2,960 in Total Drug Costs Deductible = $320 DEDUCTIBLE Enrollee pays 100% NOTE: *Amount corresponds to the estimated catastrophic coverage limit for non-low-income subsidy enrollees ($6,680 for LIS enrollees), which corresponds to True Out-of-Pocket (TrOOP) spending of $4,700 (the amount used to determine when an enrollee reaches the catastrophic coverage threshold. SOURCE: Kaiser Family Foundation illustration of standard Medicare drug benefit for 2015 (standard benefit parameter update from Centers for Medicare & Medicaid Services, 2014). Amounts rounded to nearest dollar. After total out-of-pocket spending reaches $4,700 in 2015 (excluding premiums) an amount equivalent to $7,062 in estimated total drug costs enrollees pay 5 percent of the drug cost or a copayment ($2.65/generic drugs or $6.60/brand-name drugs for each prescription) for the rest of the year. The standard benefit amounts are set to change annually by the rate of change in per capita Part D spending. In 2015, no PDPs offer the standard benefit. Most charge copayments (flat dollar amounts) instead of 25 percent coinsurance; 58 percent of plans charge a deductible (44 percent of plans charge the full $320 deductible amount, and 14 percent charge a partial deductible). The majority (74%) of PDPs offer no gap coverage in 2015 beyond what the ACA requires plans to offer. With all Part D enrollees now getting coverage for a share of their drug costs in the gap, the value of additional gap coverage offered by plans will become lower each year until 2020, when the gap is fully closed. Part D plans are required to maintain a medical loss ratio (MLR) of at least 85 percent; that is, 85 percent of revenue must be used on patient care, rather than on administrative expenses or profit. Plans vary widely, however, in terms of formularies (the list of covered drugs), the placement of drugs on formulary tiers, costsharing requirements, and utilization management tools (such as prior authorization requirements).
In 2015, the average monthly Part D premium for PDP plans is $38.83 (weighted by 2014 enrollment). Actual monthly PDP premiums vary across plans and regions, ranging from a low of $12.60 for a plan available in New Mexico, to a high of $171.90 for a plan available in Florida. Average monthly PDP premiums, weighted by 2014 enrollment, vary widely in 2015 across regions, ranging from $27.91 per month for PDPs in the New Mexico region (one of only five regions with an average under $35) to $44.56 per month for PDPs in New Jersey and $43.84 in the Idaho/Utah region. Beneficiaries with limited income (less than 150 percent of the federal poverty level, or $17,655 for a single person; $23,895 for a married couple in 2015) and limited assets ($13,640/single person; $27,250/married couple in 2015) are eligible for the Low-Income Subsidy (LIS) program, or extra help, which helps pay for some or all of the Part D monthly premium and cost-sharing amounts. Around 12 million beneficiaries are currently receiving full or partial benefits under the LIS program, depending on their income and asset levels. Beneficiaries who are dually eligible, QMBs, SLMBs, QIs, and SSI-onlys automatically qualify for the additional assistance, and Medicare automatically enrolls them into PDPs with premiums at or below the regional average (the Low-Income Subsidy benchmark) if they do not choose a plan on their own. Other beneficiaries are subject to both an income and asset test and need to apply for the Low-Income Subsidy through either the Social Security Administration or Medicaid. People determined eligible for the Low-Income Subsidy are assigned to a PDP if they do not enroll on their own. Of the 38 million beneficiaries enrolled in Part D plans, about 61 percent (23.2 million) are in PDPs; the others are enrolled in Medicare Advantage drug plans. These enrollment counts from September 2014 include 6.6 million Part D enrollees in employer-only plans. Another 2.6 million Medicare beneficiaries are estimated to be receiving prescription drug coverage from an employer or union plan in which the employer receives subsidies through the Medicare Retiree Drug Subsidy (RDS) program (equal to 28 percent of drug expenses between $310 and $6,350 per retiree in 2014) (Figure 9). Figure 9 Distribution of Sources of Prescription Drug Coverage Among Medicare Beneficiaries, 2014 Employer subsidy 2.6 million 5% All other 13.3 million 25% Part D LIS enrollees 11.5 million 21% Part D non-lis enrollees 26.6 million 49% Total Medicare Enrollment, 2014 = 54.0 million Total Part D Enrollment (excluding employer plans), 2014 = 38.1 million NOTE: LIS is low-income subsidy. Total Part D and Medicare enrollment based on 2014 intermediate estimates. Part D non-lis enrollment includes enrollees in employer/group waiver plans (6.8 million in 2014). SOURCE: Kaiser Family Foundation analysis of data from the 2014 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds.
In 2015, Part D beneficiaries pay 45 percent of their brand-name drug costs, and 65 percent of their generic drug costs in the coverage gap. Medicare is gradually phasing in subsidies in the coverage gap for brand-name drugs and generic drugs, reducing the beneficiary coinsurance rate from 100 percent in 2010 to 25 percent in 2020. In addition, between 2014 and 2019, the out-of-pocket amount that qualifies an enrollee for catastrophic coverage will be reduced, further lowering out-of-pocket costs for those with relatively high prescription drug expenses. In 2020, the catastrophic coverage level will revert to what it would have been absent these reductions. Medicare provides plans with a subsidy of 74.5 percent of the cost of standard coverage for all beneficiaries, which is based on annual bids submitted by plans for their expected benefit payments. Premium payments by beneficiaries cover the remaining 25.5 percent. In 2015, private plans are projected to receive average annual payments from Medicare of $548 per enrollee overall and $1,996 for Low-Income Subsidy enrollees; employers are expected to receive, on average, $604 for retirees in employer-subsidy plans. Plans also receive additional risk-adjusted payments for high-cost enrollees and reinsurance payments for a share of their enrollees costs above the catastrophic threshold. Part D plans potential losses or profits are limited by risk-sharing arrangements with the federal government ( risk corridors ).
Private plans, such as health maintenance organizations (HMOs), have been an option under Medicare since the 1970s. Medicare now contracts with other types of private plans, including local preferred provider organizations (PPOs), regional PPOs, private fee-for-service (PFFS) plans, and high deductible plans linked to medical savings accounts (MSAs). In 2015, Medicare beneficiaries are able to choose from an average of 18 Medicare Advantage plans offered in their area. Medicare Advantage plans receive payments from the federal government to provide all Medicare-covered benefits to enrollees. Plan sponsors are generally required to offer at least one plan with basic drug coverage. More than 8 in 10 Medicare Advantage plans (86 percent) offer drug coverage in 2015, and about four in ten plans (44 percent) offer some coverage beyond the standard benefit design in the coverage gap, mainly for generic drugs only. Plans are required to use any additional payments (known as rebates) to provide extra benefits to enrollees in the form of lower premiums, lower cost sharing, or benefits and services not covered by traditional Medicare. Examples of extra benefits include eyeglasses, hearing exams, preventive dental care, podiatry, chiropractic services, and gym memberships. Medicare Advantage enrollees generally pay the monthly Part B premium and many also pay an additional premium directly to their plan. In 2015, the average premium for MA-PD plans (weighted by 2014 enrollment) is $41 per month, but varies by plan type and is lower for HMOs ($32) than for local PPOs ($70). Medicare Advantage plans are required to place a limit on beneficiaries out-of-pocket expenses for Medicare Part A and B covered services of $6,700 in 2015. In 2015, 9 percent of all Medicare Advantage plans have a limit of $3,400 or less, while almost half (48 percent) have a limit of more than $5,000. Figure 10 Medicare Private Plan Enrollment, 1999-2014 After a decline in the number of Medicare Advantage enrollees between 1999 and 2003, the program has seen a rapid increase in enrollment in more recent years (Figure 10). The number of Medicare enrollees in private plans has almost tripled between 2003 and 2014, from 5.3 million to 15.7 million. In 2014, 64 percent of Medicare Advantage enrollees were in HMOs, 23 percent were in local PPOs, 2 percent were in PFFS plans, 8 percent were in regional PPOs, and the remainder were in other plan types. % of Medicare Beneficiaries In millions: 6.9 6.8 6.2 5.6 5.3 5.3 5.6 6.8 8.4 9.7 15.7 14.4 13.1 11.9 11.1 10.5 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 18% 17% 15% 14% 13% 13% 13% 16% 19% 22% 23% 24% 25% 27% 28% 30% NOTE: Includes MSAs, cost plans, demonstration plans, and Special Needs Plans as well as other Medicare Advantage plans. SOURCE: MPR/Kaiser Family Foundation analysis of CMS Medicare Advantage enrollment files, 2008-2014, and MPR, Tracking Medicare Health and Prescription Drug Plans Monthly Report, 1999-2007; enrollment numbers from March of the respective year, with the exception of 2006, which is from April.
In 2015, less than 5 percent of beneficiaries in 2 states (Alaska and Wyoming) were enrolled in Medicare Advantage plans, while more than 30 percent of beneficiaries in 18 states (Arizona, California, Colorado, Florida, Hawaii, Idaho, Michigan, Minnesota, Nevada, New Mexico, New York, Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Utah, and Wisconsin) were in such plans (Figure 11). Figure 11 Share of Medicare Beneficiaries Enrolled in Medicare Advantage Plans by State, 2014 0% National Average, 2014 = 30% 29% 7% 20% 17% 14% 6% 43% 51% 35% 20% 33% 15% 35% 36% 30% 3% 24% 14% 39% 15% 13% 38% 7% 33% 16% 22% 9% 34% 24% 15% DC 11% 38% 36% 13% 26% 24% 28% 32% 38% 16% 19% 22% 30% 13% 24% 28% 28% 29% 46% 38% Since 2006, Medicare has paid private plans under a bidding process: plans submit bids that estimate their costs per enrollee for services covered under Medicare Parts A and B. If plans bid higher than the county-level benchmark, enrollees pay the difference in the form of monthly premiums. If plans bid lower than the benchmark, the plan and Medicare split the difference between the bid and the benchmark; the plan s share is known as a rebate, which must be used to provide supplemental benefits to enrollees. Medicare payments to plans are then adjusted based on enrollees risk profiles. < 10% 10% - 19% 20% - 29% 30% - 39% 40% (6 states) (12 states + DC) (14 states) (15 states) (3 states) NOTE: Includes MSAs, cost plans and demonstrations. Includes Special Needs Plans as well as other Medicare Advantage plans. SOURCE: MPR/Kaiser Family Foundation analysis of CMS State/County Market Penetration Files, 2014. In the early-2000s, Medicare payment policy for plans changed from one that produced savings to one that focused more on expanding access to private plans and providing extra benefits to enrollees. Between 2006 and 2010, many advocates, policymakers, and researchers voiced concerns about rising overpayments to Medicare Advantage plans estimated to be as much as 14 percent higher than what it would have cost to cover similar people in traditional Medicare. In response, the ACA reduce federal payments to Medicare Advantage plans over time, bringing them closer to the average costs of care under the traditional Medicare program. Under this payment system, plans in counties with relatively high traditional Medicare costs will be paid 95 percent of fee-for-service (FFS) costs per enrollee, while plans in counties with relatively low traditional Medicare costs will be paid 115 percent of FFS costs per enrollee. The ACA also provided bonus payments to Medicare Advantage plans based on the plan quality ratings, beginning in 2012. In addition, the ACA required Medicare Advantage plans to maintain a medical loss ratio no lower than 85 percent, restricting the share of premiums and other revenues that could be used for profits and administrative expenses.
While many studies have examined the quality and access to care in Medicare Advantage plans, shortcomings in the available research make it hard to draw broad conclusions about the relative performance of the two coverage options. 20 A systematic review found that the data used in studies that compare traditional Medicare and Medicare Advantage tend to be old and provide limited information about the experience since the ACA was passed. Despite these limitations, at least through 2009, Medicare HMOs tend to perform better than traditional Medicare in providing preventive services and using resources more conservatively. Yet, beneficiaries rate traditional Medicare more favorably than Medicare Advantage plans in terms of quality and access, particularly sicker beneficiaries. Performance also has been found to vary widely across Medicare Advantage plans even within the same type.
Medicare provides protection against the costs of many health care services, but traditional Medicare has relatively high deductibles and cost-sharing requirements and places no limit on beneficiaries out-of-pocket spending. Moreover, traditional Medicare does not pay for some services vital to older people and those with disabilities, including long-term services and supports, dental services, eyeglasses, and hearing aids. In light of Medicare s benefit gaps and costsharing requirements, most beneficiaries in traditional Medicare have some form of supplemental coverage to help cover cost-sharing expenses required for Medicare-covered services (Figure 12). Other beneficiaries 30 percent in 2014 are covered under Medicare Advantage plans. However, 14 percent of all Medicare beneficiaries had no supplemental coverage in 2010, including a disproportionate share of beneficiaries under age 65 with disabilities, the near poor (those with incomes between $10,000 and $20,000), and black beneficiaries. Figure 12 Distribution of Sources of Supplemental Coverage Among Medicare Beneficiaries, 2010 No supplemental coverage 14% Other coverage/ combinations Medicaid only 6% 13% Medigap only 15% Employer-sponsored + Medigap 4% 26% SOURCE: Kaiser Family Foundation analysis of the Medicare Current Beneficiary Survey 2010 Cost and Use file. Employer-sponsored only 4% 3% Medicare Advantage + 15% Medicare Advantage + Medicaid Employer-sponsored Medicare Advantage only Total Medicare Beneficiaries, 2010 = 48.4 Million Employer-sponsored retiree coverage is a primary source of supplemental coverage for Medicare beneficiaries, but access to retiree health benefits is on the decline. In 2014, 25 percent of large firms (those with 200 or more workers) offered retiree health benefits to active workers, a sharp decline from the two-thirds offering health benefits for retirees in 1988 (Figure 13). Employer plans often provide additional benefits, such as additional prescription drug coverage and limits on retirees out-of-pocket health expenses. For some Medicare beneficiaries who are working (or have working spouses), employer plans are their Figure 13 Percent of Large Firms (200+ Workers) Offering Retiree Health Benefits to Active Workers, 1988-2014 primary source of health insurance coverage, and Medicare is the secondary payer. 66% 46% 40% 40% 40% 36% 34% 37% 35% 36% 35% 34% 32% 32% 29% 28% 28% 26% 26% 25% 25% 1988 1991 1993 1995 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 NOTE: Tests found no statistical difference from estimate for the previous year shown (p<.05). No statistical tests are conducted for years prior to 1999. SOURCE: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2014; KPMG Survey of Employer-Sponsored Health Benefits, 1991, 1993, 1995, 1998; The Health Insurance Association of America (HIAA), 1988.
Enrollment in private Medicare Advantage health plans has increased in recent years, and 30 percent of Medicare beneficiaries were enrolled in Medicare Advantage plans in 2014 (up from one-fourth in 2010). Medicare beneficiaries who enroll in private Medicare Advantage plans often receive supplemental benefits that are not covered under traditional Medicare, such as vision and dental benefits. Medicare Advantage plans are required to have a limit on beneficiaries out-of-pocket expenses for Medicare Part A and Part B covered services of $6,700 in 2014. (See "What is Medicare Advantage?" for additional information.) Medigap policies assist beneficiaries with their coinsurance, copayments, and deductibles for Medicare-covered services. Medigap policies help to shield beneficiaries from sudden, out-of-pocket costs resulting from an unpredictable medical event, allow beneficiaries to more accurately budget their health care expenses, and reduce the paperwork burden associated with medical claims. In 2010, about one in five Medicare beneficiaries had an individually-purchased Medicare supplement insurance policy. Currently, there are 10 standard Medigap plans (labeled Plan A-N; Plans E, H, I, and J are no longer available for sale); all Medigap policies of the same letter provide the same benefits (see Appendix 2: Standard Medigap Plan Benefits). Premiums vary by plan type, insurer, age of the enrollee, and state of residence. Medicaid helps to make Medicare affordable for low-income beneficiaries, given gaps in the Medicare benefit package, premiums, deductibles, and other cost-sharing requirements (see Appendix 3: Common Medicaid Eligibility Pathways and Benefits for Medicare Beneficiaries, 2014). In total, about one in five Medicare beneficiaries also had Medicaid coverage in 2010. Most dual-eligible beneficiaries qualify for full Medicaid benefits, including long-term care. These dual eligible beneficiaries also get help with Medicare s premiums and cost-sharing requirements, and receive subsidies that help pay for drug coverage under Medicare Part D plans. (See "What is the role of Medicare for dual-eligible beneficiaries?" for additional information.) In addition, some low-income Medicare beneficiaries do not qualify for full Medicaid benefits, but receive help with Medicare premiums and/or some cost-sharing requirements through the Medicare Savings Programs (MSPs). Eligibility for this assistance is based on a beneficiary s income and resources (the latter generally must be less than $7,160 for a single person and $10,750 for a married couple in 2014).
For the 10 million low-income elderly and disabled people who are covered under both the Medicare and Medicaid programs (often referred to as dual-eligible" beneficiaries), Medicare is their primary source of health insurance (Figure 14). Medicare covers most medical services, including inpatient and outpatient care, physician services, diagnostic and preventive care and, since 2006, outpatient prescription drugs under Part D plans. Medicare does not cover routine outpatient dental care or nonskilled long-term services and supports, such as in home care or extended home and personal care in the community. Medicaid, a need-based program funded jointly by the federal and state governments, supplements Medicare by providing help with Medicare s premiums and cost-sharing requirements, and by helping to pay for the services that are not covered by Medicare. Together, these two programs help to shield very low-income Medicare beneficiaries from potentially unaffordable out-of-pocket medical and long-term care costs. Figure 14 Number of Beneficiaries Enrolled in Medicare, Medicaid, and Both Programs, 2010 Figure 15 20% 80% Medicare 40 million Total Medicare beneficiaries, 2010: 50 million Dual-Eligible Beneficiaries as a Share of Medicare and Medicaid Enrollment and Spending, 2010 Dual-eligible beneficiaries Medicare 34% 66% Dually eligible 10 million 14% 86% Medicaid 56 million Total Medicaid beneficiaries, 2010: 66 million SOURCE: Kaiser Family Foundation analysis of a 5 percent sample of Medicare claims from the Chronic Conditions Data Warehouse, 2010, and Kaiser Commission on Medicaid and the Uninsured and Urban Institute estimates based on FY2010 MSIS. Non-dual eligible beneficiaries Medicaid 34% 66% Dual-eligible beneficiaries are disproportionately counted among both Medicare and Medicaid s high spenders. In 2010, dual-eligible beneficiaries comprised 20 percent of Medicare beneficiaries but 34 percent of Medicare spending, and, similarly, 14 percent of the Medicaid population but 34 percent of Medicaid spending (Figure 15). Total Medicare enrollment, 2010: 48.9 million Total Medicare spending, 2010: $498.9 Billion Total Medicaid enrollment, 2010: 67.2 Million SOURCE Medicare Payment Advisory Commission and Medicaid and CHIP Payment and Access Commission, Data Book: Beneficiaries Dually Eligible for Medicare and Medicaid (January 2015). Total Medicaid spending, 2010: $340.5 billion Dual-eligible Medicare beneficiaries are more likely than other Medicare beneficiaries to be frail, live with multiple chronic conditions, and have functional and cognitive impairments. Four in 10 dual-eligible beneficiaries (39%) are under age 65 and living with disabilities, compared to about one in 10 (11%) non-dual eligible beneficiaries. Nearly half (48%) of all dual-eligible beneficiaries rate their health status as fair or poor, more than double the share of non-dual eligible beneficiaries (22%). A larger share of dual-eligible beneficiaries than non-dual eligible beneficiaries have three or more chronic conditions (70% versus 63%); more than half (56%) of all dual-eligible beneficiaries have a cognitive or mental impairment, compared to one